Oil Watchdog

Right: Valero’s Amarillo refinery blast in February

The chief funders of California’s anti-regulation Proposition 23 on the November ballot are a pair of Texas-based refiners, Valero and Tesoro. Each of them has two refineries in California and the last thing they want, from a profit standpoint, is regulation of greenhouse gases or any concerted attempt to slow climate change.

Refiners hate spending their capital on clean air–it doesn’t return them a dime of profit in the short term. And they don’t want to cut into the extra profit they make on California’s higher gasoline prices, a bonus they call the “California Premium.”

In most ways, the refiners’ Proposition 23 is like the single-industry propositions sponsored a few months ago by the electric utility PG&E and the auto insurer Mercury Insurance (Propositions 16 and 17). Voters saw through both of them and said no.

The big difference this time around is the size of the stakes. The groundbreaking state law they are trying to kill, known as AB32, would force the refineries that pump out about 10% of all the greenhouse gases in the state to clean up their act or pay steeply for the privilege of running their aging, filthy smokestacks.

But cleaning up means spending hard cash, and for corporations there’s a clear choice between fast profit and long-term environmental benefits that Would help the whole economy, not just their corner of the market.

CEOs are careful about expressing this in public. But Valero’s CEO, Bill Klesse, spilled a few beans in recent investor calls and analyst question and answer transcripts. He admitted that he opposed installing a smokestack scrubber at Valero’s Benicia, CA refinery because, from a corporate viewpoint, air quality compliance is a waste of money.

–Here are excerpts from Valero’s 1st Quarter 2010 analyst Q and A

Question: Chi Chow – Tristone Capital

I guess, the other question I had was; it just seems like the capital requirements are coming in the few years or may be in next decade. You got a lot non-profit type capital where you need to spend specially on legislative tech [environmental compliance] items. How concerned are you on the returns, longer term in this business?

Answer: Bill Klesse

Well, I guess treat as very fine and fair approach. But all I would tell you that, that’s how it always is. If you remember the Clean Air Act first in the 70′s then in the 90′s when it was amended. If you go back we have all that capital go in. Rich [Richard Marcogliese, Valero COO] made the comment I am very against this scrubber that we’re putting in Benicia. This scrubber itself is $450 million that has no [profit] return.

….

Chi Chow – Tristone Capital

Okay. And one final question, you bring up California, they just adopted this low carbon fuel standard. Just the scrubber at Benicia get you to those requirements and how much more would think you need to put into California I means the state requirement?

Bill Klesse

I mean….. all right.

Joe Gorder

Well, just first on the scrubber, that is for an air quality requirements to reduce sulphur emission, so that it is separated apart from the low carbon fuel standard.

Chi Chow – Tristone Capital

Okay.

Bill Klesse

On low carbon fuel I think we need to look at the detail, there is a movement for low carbon fuels.... I think this is a far bigger issue; there is going to be a lot more politics involved. So the [devil is] in the details on this.

So here’s the bottom line, or at least one bottom line, on Proposition 23 on the November ballot. If these Texas refineries (disguised as job advocates) win, it’s a victory of short-term profit over keeping the planet livable for future generations and generating new wealth in green tech.

We either let corporations force their short view down our throats at the ballot box, or reject their scaremongering and embrace a complicated but greener and ultimately more prosperous future.